Webcasters: still (!) no deal on streaming royalties

The Webcaster Settlement Act gave those running Internet audio streams until …

In the US, royalties for the commercial broadcast of music are handled by a nonprofit group called SoundExchange. That arrangement has made the group a key player in negotiations regarding the fees paid for commercial Internet radio, a developing market that hasn't found a consistent revenue stream. Faced with the possibility of hefty fees that could force companies out of the business, streaming radio caught a break with the passage of the Webcaster Settlement Act of 2008, which gave the two groups until Sunday to come to an agreement. Although public and traditional radio stations came to terms with SoundExchange, negotiations with webcasters broke off over the weekend, leaving the next steps uncertain.

The problem dates back to a decision by the Copyright Royalty Board, which sets statutory royalty rates. In the most recent proceeding, it decided on rates per stream that most Internet streamers felt were unsustainable. That decision has been appealed, and the Settlement Act appeared to be an attempt to allow negotiations, rather than legal action, to settle matters. These negotiations, however, have been made more challenging by a byzantine series of rules that differ among download-to-own, subscription, and commercial streaming, and the fact that SoundExchange has been cutting separate deals with different types of broadcasters.

The first to come to terms was the Corporation for Public Broadcasting; NPR stations stream much of their material. Although the rates they will pay for this right weren't specified, the announcement of the agreement indicates they will be "alternative statutory royalties from those established by the Copyright Royalty Board." In other words, they will be cheaper than the statutory rate. That doesn't mean NPR is getting off cheaply, as the agreement includes an up-front payment of $1.85 million to cover a license dating back to 2005. The rates are only good through 2010 as well, which suggests that the two groups should probably start negotiations on the next agreement sometime around tomorrow.

On Monday, SoundExchange also announced an agreement with the National Association of Broadcasters, which represents traditional radio stations, many of which also have a streaming presence. That agreement set rates that are discounted from the ones set by the Copyright Royalty Board. The move makes sense for the NAB; six years should give its members enough time to figure out whether online streaming is likely to ever make financial sense.

Left out in the cold are the pure webcasters, like Pandora. According to The New York Times'tech blog, negotiations had been close to a resolution over the weekend but fell apart because of disagreements over a potential two-tiered pricing structure. Depending on size and income, webcasters might pay either per-song fees or a flat percentage of revenue or expenses. The Times suggests that the smaller Internet broadcasters viewed the fee structure as punishing success—if they managed to grow their business, they'd quickly break through a ceiling and wind up paying much higher royalties for their content.

The parties seem to have several options, none of them appealing. There is apparently some talk of asking Congress to extend the deadline for negotiations further, although legislators seem to have plenty of distractions these days. There is also some mention of individual webcasters cutting deals with SoundExchange, which threatens to fragment the streaming market further.

Already, NPR and the NAB, as part of their agreements with SoundExchange, have accepted the decision by the Copyright Royalty Board that triggered these negotiations and dropped their appeals. If a few major webcasters reach similar royalty agreements, there will be few webcasters left to even approach Congress or continue the appeal of the initial royalty decision.